Final Results

Released : 16.05.2016

RNS Number : 2753Y
e2v technologies PLC
16 May 2016
 

16 May 2016

 

e2v technologies plc

Results for the year ended 31 March 2016

 

Delivering on 'Our vision, our future'

 

e2v technologies plc announces its results for the year ended 31 March 2016.  Bringing life to technology™, e2v partners with its customers to improve, save and protect people's lives.  e2v's innovations lead developments in automation, healthcare, communications, safety, discovery and the environment.

 

Results

 


Year ended

31 March 2016

£m

Year ended

31 March 2015

£m




Revenue

236.4

224.9

Adjusted(1) operating profit

42.0

40.1

Adjusted(1) profit before tax

40.8

39.0

Adjusted(3) earnings per share

14.59 p

13.68 p

 



Profit before tax

37.8

30.1

Earnings per share

13.64 p

10.94 p

Dividend per share

5.4 p

5.1 p

Net borrowings(2)

(21.1)

(5.2)

 

Highlights

 

·     Solid year of progress in challenging markets, delivering a good financial performance.

 

·     Revenue up 5.1%, including organic growth, acquisitions and FX benefit.

 

·     Adjusted(1) operating profit up 4.7%.

 

·     Adjusted(3) earnings per share up 6.7%.

 

·     Full year dividend increased 5.9%.

 

·     Acquisition of SP Devices.

 

 

(1)       Adjusted operating profit and adjusted profit before tax are before specific items.

(2)       Net borrowings exclude debt issue costs.

(3)       Adjusted earnings is profit before specific items less tax where applicable.

 

Commenting on the results, Steve Blair, Group CEO said:

 

"I am delighted with the performance of the business.  We have made solid progress on 'Our vision, our future' and delivered a good financial performance, with a strong finish to the year.  Over the last two years we have made good progress with our focus on customers and they are experiencing the benefits of the changes we are making.  Our focus on operational excellence has delivered margin improvement in all three divisions.  We are pleased to welcome the SP Devices team to e2v and we are making good progress with its integration.

 

"Over the coming year our focus will continue to be on our customers, innovation and operating with excellence.  We believe this will enable us to continue to deliver growth.  Whilst we remain cautious about the broader economic environment, our outlook for the current financial year remains unchanged with a similar first half, second half weighting to that in the previous financial year."

 

Further enquiries: e2v technologies plc



Steve Blair, Group CEO

Charles Hindson, Group Finance Director

Nick Wright, Director of Group Financial Performance


Tel: +44 (0)1245 493 493

Website: www.e2v.com






FTI consulting



Richard Mountain/Susanne Yule


Tel: +44 (0)20 3727 1340

 

 

 

 

 

 

CHAIRMAN AND GROUP CEO STATEMENT

 

Overview

 

We delivered another year of solid progress producing a good financial performance in line with our guidance given in January.  We are embedding 'Our vision, our future' and it is encouraging to see how enthusiastic our people are about 'Bringing life to technology™'.  We continue to focus on our customers and our operational foundations.  We are pleased with the progress that has been made over the last two years.

 

Customers remain our key focus; the two of us have visited over 27 during the past year.  Our annual customer survey ratings have improved and we are increasingly being seen as a key partner.  We have continued to improve our operational effectiveness demonstrated by margin improvements in all three divisions.  The divisions are demonstrating ownership and responsibility for their individual businesses and are being agile in responding to the challenges they face.  We have reconfirmed our strategy, maintaining our investment in the areas where are seeing the greatest potential for growth.  It was pleasing to complete the acquisition of SP Devices, a step forward in our strategy to provide customers with board-level solutions and specialist applications expertise.

 

The year ended 31 March 2016 represents our third consecutive year of revenue growth in markets with slow overall growth.  Our investment priorities remain Industrial Vision, Space, Radiotherapy and Semiconductors, whilst continuing to support customers across our other activities.  We are seeing the benefits of this disciplined approach.  We have seen slower growth in many of our markets this year, so our innovation is allowing us to make new markets and to take market share to support our growth.

 

Performance

 

The Group delivered reported revenues of £236.4m, an increase of 5.1% (2015: £224.9m), and maintained the adjusted(1) operating profit margin at 17.8%, which resulted in adjusted(3) earnings per share increasing 6.7% from 13.68p last year to 14.59p this year.

 

The culture change within the business over the past two years is improving how we operate.  We saw strong revenue growth in Imaging, both in Professional Imaging and Space, driven by innovation and improving operational performance. We have delivered a significant margin improvement in Imaging and Semiconductors.  In RF Power we saw modest margin improvement despite lower revenue, demonstrating the benefits of reorganisation and good cost control. 

 

Adjusted(1) operating profit increased from £40.1m to £42.0m, after absorbing a £5.5m swing in foreign exchange, representing growth of 4.7%.  These results reflect a good performance through the year, with a particularly strong fourth quarter.  Comparing year on year performance, we saw organic growth in our Industrial Vision, Space, Radiotherapy, Commercial and Industrial businesses, with lower revenues in RF defence.  We also benefited from the acquisition of AnaFocus and SP Devices, partially offset by the disposal of our Thermal Imaging business. 

 

The financial position of the Group remains strong with net borrowings of £21.1m (2015: £5.2m).  In terms of working capital movements this is in line with our working capital model, and decisions that we consciously made in the second half. Inventory and trade receivables have increased in Imaging to support growth.  We made progress on our reorganisations and had lower accruals for incentive payments in the year.  We completed our programme to reduce concentration in our supply chain in RF Power and have utilised advanced payments as we have delivered on Space programmes.  This was in part supported by reductions in planned capital expenditure in the later part of the year such that this remained equivalent to depreciation and amortisation.  Acquisitions utilised £13.0m of cash.  This included the acquisition of SP Devices, earn out payments on AnaFocus and product line acquisitions in Semiconductors, less the proceeds from the sale of Thermal Imaging.

 

We have benefited from making the divisions more accountable for their end-to-end performance and reorganising them so they can focus on delivery to their customers.  A refreshed management team for Space has been established under the new divisional president and we are beginning to see the benefits of the changes they are making. We have made progress on the reorganisation of the RF Power operations in our Chelmsford facility 'Project Sunrise'.  We have established separate units for our specialist defence activities in Lincoln, and we have completed the reorganisation of our US businesses.  We were pleased to complete the sale of our Thermal Imaging business in October, further simplifying our Professional Imaging business.

 

As part of the evolution of the Group we have refreshed the management and refocused our people to better meet our customers' needs.  This aligns our people more closely with our strategy and provides them with more opportunity to share in the success of the Group.

 

We closed the year, as expected, with a 12 month order book at £130m, an 11% decrease over the prior year of £146m.  This reflects the changing composition in the Group's revenues with growth coming in shorter order cover businesses, delivery on programmes in Space and the cycle of the Radiotherapy business along with the anticipated decline in RF defence.

 

Dividend

 

The Board has recommended a final dividend of 3.8p per share, bringing the full year dividend to 5.4p per share, an increase of 5.9% from last year's full year dividend of 5.1p and in line with our progressive dividend policy.  The final dividend is scheduled for payment on 2 August 2016 to shareholders on the register at the close of business on 8 July 2016.

 

Direction

 

We continue to embed our vision, 'Bringing life to technology™'.  As part of the Group's strategic cycle, the Board has reviewed progress in the implementation of our strategy with its refocus on customers, markets and opportunities.  This has reaffirmed the attractiveness of our selected areas of investment priority.

 

Our strategic drivers bring together our vision. We continue to focus on our customers; this is our core belief.  Our customers have provided improved scores in our most recent customer survey.  We are seeing real progress in embedding the new culture and how everyone can make changes in what they do to benefit our customers.  We have strengthened management, simplified our processes and reorganised our remaining central operations leading to lower costs and improved margins.  We continue to focus on operational improvement, with an ongoing focus on process effectiveness and Space.  We are investing in innovation in our chosen markets where we see that there is strong customer pull and increasingly working with our customers as their trusted innovation partner.  We have made considerable progress over the last two years through self-help and the business is in good shape to respond when market conditions improve.

 

We successfully completed two acquisitions over the last two years and we continue to build a pipeline of possible opportunities.  The timing and terms of any particular deal is difficult to predict.  To support this, the Board sees an appropriate target net indebtedness level of not more than 1.5x net borrowings to EBITDA. This could rise for a period of time closer to the Group's financing arrangements limit if there was an exceptional acquisition and the Board was confident that leverage would reduce in a timely manner post such acquisition.

 

Safety, health and environment

 

We are continuing our journey with our Safety Health and Environmental Leadership Team (SHELT) programme.  We are encouraged by the commitment of employees to identify hazards and make proactive suggestions for changes to reduce risk.  This is improving the safety of our working environment as we can take action before issues arise.  The Group maintains its good health and safety record with no serious incidents and improved staff safety recognised in a decrease in the accident count during the year.  The Group is committed to operating in an environmentally sustainable way and we have reduced our normalised greenhouse gas emissions despite our growth.

 

People

 

We are pleased with the ongoing engagement of our employees with our vision of 'Bringing life to technology™'.  Our people have used their talents to sustain innovation and supply the solutions our customers seek.  Our staff are committed to putting the customer at the centre of everything that they do, simplifying how they do things and operating in an effective and efficient manner.  We regularly celebrate success and value everyone's contribution and are working together to improve what we do and work smarter. 

 

We remain committed to offering opportunities to our people and new joiners to develop their careers.  Amongst our staff of 1,750, we welcome 271 new joiners, 29 of whom are on our graduate and apprentice schemes, and we congratulate 113 people who have been promoted.  

 

We are grateful to all of our employees for their hard work during this year and thank them for their commitment and success in growing the Group's businesses.  It was particularly pleasing to see the commitment of our people to deliver the performance in the final quarter.  We were able to formally recognise this through discretionary bonus payments at modest cost.

 

Overall, we are pleased that we are delivering 'Our vision, our future'.

 

Outlook

 

Whilst we remain cautious about the broader economic environment, our outlook for the current financial year remains unchanged with a similar first half, second half weighting to that in the previous financial year.

 

Strategic Report signed on behalf of the Board.

 

 

 

Neil Johnson

Steve Blair

Chairman

Group CEO

 

 

 

BUSINESS REVIEW

 

Summary

 


2016

2015

Change


£m

£m

%





Revenue




Imaging

103.5

88.7

16.7

RF Power

80.5

84.2

(4.4)

Semiconductors

52.4

52.0

0.8


236.4

224.9

5.1





Adjusted(1) Operating profit




Imaging

15.7

9.3

68.8

RF Power

18.7

19.4

(3.6)

Semiconductors

14.2

11.9

19.3

Corporate centre and exchange movement

(6.6)

(0.5)



42.0

40.1

4.7

 

Our vision

 

Our vision of 'Bringing life to technology™' is central to how we operate. It provides the Group with our common purpose, namely 'we partner with our customers to improve, save and protect people's lives'. It informs our decision making so that our innovations lead developments in automation, healthcare, communications, safety, discovery and the environment.

 

During the year, we have been embedding our new culture.  All staff events in both Chelmsford and Grenoble demonstrated that our people understand our vision, brand and values and how they can play their part in making it real for both our customers and their colleagues.

 

Our strategy

 

Our focus on our customers is at the core of this framework.  We actively listen to our customers' feedback and we are responding to what they tell us through delivering what our customers value rather than what we seek to achieve technically.  The divisions are empowered to focus on their customers' needs and have the power and the responsibility for end-to-end delivery to customers.  Our customers are appreciating the changes we have made and this is being demonstrated in the improving feedback we receive from them in our annual customer survey and increasingly they are looking to work with us as their trusted partner for their future developments. We are looking to build greater customer intimacy and will continue to focus on our strategic customers.

 

We are seeing good progress in embedding our culture, which is retaining the best from our engineering heritage whilst simplifying processes and building a responsive and energetic organisation.  Our people have embraced the vision and the new brand and are making the change happen.  They understand how they make a difference to people's lives working in partnership with our customers.  We have been consistent in our internal communications, with a focus on our foundations and values and explaining how everyone can play their part.  This means our people understand what is expected of them and can work more effectively.

 

Our people are encouraged to use their talents to sustain innovation and supply the solutions our customers seek.  We have seen new product introductions particularly in Imaging and Semiconductors, which have been well received by our customers.  In our Space Imaging and RF Power customer programmes we are working at the cutting edge of the technology, delivering high quality bespoke products.  We have successfully completed the integration of AnaFocus which has accelerated innovation within Imaging.  We will complete the integration of SP Devices in the coming year and are already seeing the benefits that this team brings to the Semiconductors division.

 

We seek to operate with excellence, shown by rigorous execution driving responsiveness and agility.  We have seen good progress across the business, with improved performance in each of our divisions.  Our people are open to doing things differently. They can see that their ideas for improvement are being listened to and are keen to share these, underpinning our drive for operational excellence throughout the Group. As a result, we have made significant improvements in areas which are critical to our customers, including on-time delivery.  We are looking for further operational improvement in Space, and to focus on process effectiveness across the Group along with a reduction in inventory cycle time.

 

We will continue to focus on delivering organic growth, with acceleration coming from acquisitions and we are continuing to build our acquisition pipeline.

 

Our operating model

 

We operate in international markets, with global supply chains. We have nine main engineering facilities and six sales offices across Europe, the US and Asia Pacific to support our global customers. We have moved our facility in Beijing to be closer to our Radiotherapy customers, we have also opened a new facility in Shenzhen to support our Professional Imaging business and we are expanding our office in Japan to support the new business opportunities that AnaFocus has generated.  The Group is organised according to the needs of our customers in three divisions: Imaging, RF Power and Semiconductors. The three divisions have full end-to-end profit and loss responsibility for their businesses; covering responsibility for product design and development, operations, sales and customer services.  During the year we completed the reorganisation of the regional teams in the US and Asia so that they too are aligned with the divisions.  We have also completed the reorganisation of the remainder of Group operations, with purchasing and facilities being moved into the divisions.  This significantly reduced the size of the Group functions and empowers the divisions to focus on delivery to their customers.  The divisions are now customer-led and supported by the Group which provides guidance and oversight on a 'trust and verify' basis.

 

Over the last year we have continued to strengthen our operational foundations. Through focusing on our customers, we have further simplified our business processes, making us more agile as an organisation. We are embedding a culture of operational excellence and are seeing the benefits in all three divisions.   We have continued to strengthen our management teams under our executive leadership team, and they are driving change throughout the business.

 

The divisions deliver value to their customers in global application segments.  We partner with our customers to improve save and protect peoples' lives.

 

The Group function provides strategic direction and support, and drives best practice.  It also provides some common services for the divisions.

 

Our markets

 

We focus our investment where we see strong customer demand for access to technology platforms for end market sectors with above GDP growth potential.  These markets should also provide us with medium to high margin potential.  We are prioritising our investment in four business areas: Industrial Vision, Space, Radiotherapy and Semiconductors. We will also maintain our engagement in the segments where we see customer demand supporting an attractive financial profile supporting investment aligned to customers.

 

Our highly skilled workforce is trusted by our customers to supply technically complex solutions for our customers' systems. We seek to generate growth through providing higher value solutions and new product development, platform life extension and upgrade, and new applications for our existing technologies.

 

The top two market sectors of focus for our Industrial Vision business are automation and healthcare.  Both of these sectors have the potential for strong growth in the medium term.  In the automation sector we now have good market coverage within Professional Imaging.  In healthcare, we have the potential to continue to support our Radiotherapy OEMs.  In our other markets, communication includes both moving people and enabling direct communication around the world covering space, civil aviation, and marine sectors.  Discovery is driven by mankind's thirst for knowledge and offers growth opportunities particularly for space, planetary observation, and science imaging.  Safety includes our passive defence sectors and reflects the level of government spending in these sectors.  The environmental market is driven by concern for our world and its finite resources and covers earth observation and science sectors.

 

Our performance

 

Reported revenue of £236.4m is up 5.1% compared with the last financial year.  Organic revenue growth was 1.4% before the benefit of the acquisitions and excluding of the sale of the Thermal Imaging business.  We also benefited from foreign exchange increasing reported revenue by 2.4%.  In Industrial Vision we saw strong demand for automatic data collection, machine vision sensors, and optical inspection CMOS cameras.  In Space we had good growth from delivery on a number of our key programmes.  We saw modest growth in Radiotherapy with increased demand from our key OEM customers, whilst we have absorbed some destocking.  The weakness in RF defence was more pronounced than we anticipated with some programme wins being delayed.  In Semiconductors we saw increased activity in the US along with good growth from our own design data converters, being offset by lower demand for microprocessors and the anticipated decline in the legacy ASIC business.  In the first five months of the year, AnaFocus contributed additional revenue of £4.4m, and SP Devices contributed £0.6m since its acquisition in January 2016.

 

Adjusted(1) operating profit of £42.0m reflects the contribution from organic revenue growth of £1.9m.  We are seeing the change in culture improve operational performance, with reorganisation and cost reduction in those areas where growth has been slower than anticipated.  We have drawn on the flexibility established in the cost base with a reduction in the number of temporary staff and contractors along with lower incentive payments.  We increased margins in Space as we are beginning to see the benefit of improved operational performance and delivery to customers.  We absorbed a significant swing in foreign exchange.  The revenue benefit of foreign exchange was  partly offset by the translation of working capital and realised losses on foreign exchange hedging.  To support growth we have continued to target our research and development activities where we see the potential for market growth and strong demand from our customers.  We have also continued to increase selling and application engineering resources in Asia to support customers in this region.

 

Net borrowings of £21.1m, increased by £15.9m. In terms of working capital movements this is in line with our working capital model, and decisions that we consciously made in the second half.  Inventory and trade receivables increased in Imaging to support growth.  We have progressed our reorganisations and made lower accruals for incentives in the year.  We have continued to focus on our customers with our programme to reduce concentration in our supply chains and this along with utilisation of advanced payments on Space programmes has also called upon working capital.  This was in part supported by reductions in planned capital expenditure in the later part of the year such that this remained equivalent to depreciation and amortisation.  Acquisitions utilised cash of £13.0m.  This included the acquisition in January of SP Devices, earn out payments on AnaFocus and product line acquisitions in Semiconductors.  In October we sold the Thermal Imaging business

 

Our closing order book at 31 March 2016 was £182m (2015: £191m) reflecting good order intake in Professional Imaging, offset by lower order intake in Space, RF Power and Semiconductors.  Our order book for delivery over the coming 12 months was £130m (2015: £146m), a decrease of 11%.  The order book reflects the progress made in Space on the current programmes, continued growth in our shorter order cover businesses and the cycle on our Radiotherapy orders.

 

Our goal

 

Our goal is to double the size of the Group by 2020, with reference to the adjusted operating profit of the financial year ended 31 March 2015.  In slower growth markets, our organic growth will come from taking market share through innovation and making new markets through new product introductions.  This means that to achieve our goal will require a greater proportion of growth to come through acquisition and we continue to build our acquisition pipeline, although the timing and terms of any particular deal is difficult to predict.

 

We will continue to consider acquisition opportunities that are a good fit with our strategy and that accelerate our ongoing organic growth by providing us with further technological know-how, as well as both strengthen our customer relationships and bring talented people.

 

In summary, our investment proposition is revenue driven growth, based on being our customer's trusted expert partner, whilst retaining a resilient financial profile in support of our progressive dividend policy.

 

Divisional Review

 

Imaging

 

Our value proposition - what we do and our key drivers

Imaging is arranged in two business streams: Professional Imaging and Space Imaging.

We provide high quality imaging sensors, cameras and sub-systems delivering high performance for our customers across a range of applications in the automation, healthcare, discovery and environment markets.

For Professional Imaging we provide high performance image sensors and cameras solutions in the form of customer specific products that we develop for our customers, as their innovation partner, or as application specific standard products. 

For Space we provide high performance and high quality space qualified imaging sensors and arrays for space science and astronomy applications and high speed, high resolution sensors for earth observation satellites.

Customers and markets

In Professional Imaging the industrial vision market is driven by the increased use of sensors in industrial automation for quality and efficiency where we see high single figure market growth rates. AnaFocus has brought new customers and strengthened our existing relationships.  It provides growth through innovation leading to new product lines and winning custom programmes.  We work for specialised OEMs who are market leaders in the application of imaging technology for factory automation, optical inspection, automatic data collection, x-ray radiography and life sciences.  We are well positioned to take advantage of the five year plan in China for automation to support the quality drive to 'made in China.'  In the year, the combination of new product introduction and innovation has doubled our growth. 

In Space, governments increasingly seek to maintain independent observation capabilities.  The expansion of climate change monitoring is driving a growing demand for new observation satellite programmes. We have a strong position in Europe particularly in CCD sensors and our offering remains attractive to customers due to its long proven performance in flight.  The main end users are worldwide space agencies including ESA, NASA, JAXA and CSA, as well as the prime satellite manufacturers, including Astrium, Ball Aerospace, Lockheed Martin and Thales.  We also provide sensors and sub-systems for use in ground based astronomy applications, where the customers are typically academic institutions, with our camera for JPAS due for delivery soon.

Operational progress

We have continued to develop our relationships with the key OEMs with our ambition to be their trusted innovation partner. We have invested in our product portfolio and widened our scope of services with the integration of AnaFocus that provides customer specific CMOS sensors for a range of applications.  We are focused on the areas that have the potential for strong growth and as part of this increasing focus.  We sold our Thermal Imaging business during the year.

In Space, we work closely with our customers on their technically challenging programmes, providing solutions that meet their demanding requirements on the next generation of projects.  We build understanding of their requirements and innovate subject to their constraints.  We have established a new management team under the new divisional president and we have seen the start of the operational improvement and delivery to customers.  The recovery programme being addressed by the new management team is complex and multifaceted and will take some time.

We are pleased with the pace of progress.  A year ago we had ten larger problem contracts.  In the year four of these have been delivered or our financial position improved with a further five due for delivery in this current financial year.

Performance

Reported revenue increased by 16.7% to £103.5m (2015: £88.7m) showing the fastest growth in the Group and now representing over 44% of Group revenue.  Excluding AnaFocus, foreign exchange and the sale of Thermal Imaging, organic growth was 12%.  Professional Imaging represents two thirds of the division's revenue with the balance coming from Space.  Underlying growth came from strong demand in automatic data collection, machine vision sensors and optical inspection CMOS cameras.  Life sciences delivered modest growth reflecting stronger end user demand.  In Space, revenue growth came through delivery on programmes, although these programmes remain technically challenging and we are continuing to commit the resources needed to improve delivery to our customers. 

The division's adjusted(1) operating profit was £15.7m (2015: £9.3m), an increase of 69%.  Overall profit growth reflects the contribution from the revenue growth with Professional Imaging delivering improving margins and in Space margin improvement reflects the benefit of the improving operational performance.  R&D activities have been increased to drive future growth, focusing on areas of strong customer demand in particular industrial automation and Space.  In line with our working capital model there is a higher level of inventory reflecting revenue growth.

The order book at 31 March 2016 was £93m (2015: £90m).  The orders due for delivery in 12 months as at 31 March 2016 were £60m (2015: £70m), reflecting delivery on Space programmes, and the shorter order cycle nature of the Professional Imaging business.

The focus for the coming year in Professional Imaging is to make new markets and take market share with a focus on key market leaders. In Space the focus is on embedding the operational changes and deliver ongoing margin improvement.

 

RF Power

Our value proposition - what we do and our key drivers

We add value to our customers through consistently supplying reliable application specific products, addressing difficult engineering challenges and providing long-term continuity support.

We produce components and sub-systems that deliver high performance and high reliability radio frequency power generation for healthcare, industrial and defence applications. The key growth drivers for the division are the increasing incidence of cancer worldwide, industrial growth and the level of defence spending.

Customers and markets

We sell to a diverse range of markets with a common need for high power radio frequency solutions. Our key market is medical radiotherapy where we work with all the leading systems suppliers. We also supply OEMs in the healthcare, automation, safety and communication markets.

In radiotherapy we continue to anticipate that spares revenue will grow in line with the past expansion of the installed base over the last five to ten years. Revenue growth is anticipated from continued new build demand, which accounts for approximately one third of the growth, and which currently has low single figure growth rates, with two thirds from the installed base which has had higher growth rates in prior years. We continue to engage with our customers to support their current organisational priorities.  Our principal customers are the radiotherapy system OEMs including Accuray, Elekta and Varian.

Other applications include our commercial and industrial markets, covering radar for commercial shipping and applications such as industrial heating, industrial and dielectric welding, lasers and cargo screening.  In defence, the key driver is the level of NATO defence spending.  Defence budgets across the NATO countries are constrained and we do not anticipate this changing in the short-term despite global and regional threats.

Operational progress

The majority of the growth in the division is anticipated to come from radiotherapy where we continue to prioritise our investment.  Our other applications continue to be driven by the general industrial cycle.  Defence will remain subdued reflecting defence budgets.

During the year we made progress on our site restructuring programme, Project Sunrise, which incorporates the new vision and brand, drives further operational efficiency, consolidates the footprint of the activities that support the portfolio and provides options for the future use of space being vacated.  We anticipate that this programme will be completed over the next two years.  We have also established separate units for the Lincoln based defence activities.

Performance

Reported revenue was £80.5m (2015: £84.2m) with modest growth in radiotherapy reflecting increased demand from our key OEM customers, whilst absorbing some destocking, along with growth in our commercial and industrial markets.  This was offset by weakness in defence with slower than anticipated programme wins and a pause in industrial processing systems.

The division's adjusted(1) operating profit was £18.7m (2015: £19.4m), reflecting a modest improvement in the margin to 23.2% despite the lower revenue profile.  This reflects cost control and the alignment of the cost base in defence to the expected activity level.  Research and development activities continue to be focused primarily on radiotherapy applications.  Inventory levels increased to support customer delivery and as part of a specific programme to reduce over concentration in the supply base and provide continuity of supply as new suppliers are qualified.

The order book at 31 March 2016 was £69m (2015: £80m).  The decrease reflects the cycle of the multi-year radiotherapy contracts with delivery against our contracts for our key OEM customers.  We also had a reduction in our defence order book reflecting slower than anticipated programme wins.  The orders due for delivery in 12 months as at 31 March were £55m (2015: £58m), reflecting lower than a full year cover for radiotherapy.  We secured a one year extension to one of our multi-year contracts with two more contracts up for renewal in the coming year.

The focus for the coming year is to grow radiotherapy revenue, supporting our key OEM customers who are increasingly focused on value.

Semiconductors

Our value proposition - what we do and our key drivers

We provide high reliability semiconductors that meet the demanding specifications of our customers.  Our design capability is enabling us to partner with customers and move up the value chain by providing customers with board-level solutions and specialist applications expertise.  SP Devices is providing access to new applications and sectors including test and measurement

Through our strategic partnerships with Freescale, Everspin, Maxim and Micron we provide a range of high reliability versions of their standard products for use in aerospace applications.  Our own design high speed data converters provide market leading performance for space and radio frequency communications.  We also provide our customers with continuity of supply for components that they value, avoiding risks associated with counterfeit products.

Customers and markets

We have continued to focus on meeting our customers' requirements for high reliability, excellent service and on-time delivery.  We have focused on our customers by increasing our business development resources to better understand our customers' needs, co-funded developments and strengthened our relationships. We have also continued our investment in growing our key strategic partnerships.

We see continued ongoing market growth for high reliability products in civil aviation applications such as flight control computers and engine management systems, driven by civil aviation production rates which have seen high single figure growth rates.  Our own designed space qualified data converters are winning market share as they enable our customers to reduce the size and weight of their satellites and at the same time increase the number of communication channels.  The steady demand for products that are provided primarily into defence applications growth is driven by the flow down of funds into the large defence OEMs.

Our in-house designed high speed data converters provide market leading performance for ADCs and DACs for space RF communications.  Our data converters are used by most of the major space primes and tier one suppliers, including Boeing in the US where we secured a multi-year framework contract and Thales in Europe, where we enable high bandwidth radio frequency communication links.

We were pleased to have completed the acquisition of SP Devices in January 2016.  SP Devices provides high performance sub-system solutions for analogue to digital conversion applications.  These are used by customers including leading original equipment manufacturers across a number of sectors, including industrial test and measurement, healthcare, communications and science.  It also brings proven patented technology in software and board level sub-systems and services, which complements and enhances e2v's broadband data converter business.

Operational progress

We have introduced new own design high speed data converters and new multi-chip modules which enable our customers' innovation.  We have also secured design-ins for our products on future programmes for civil aerospace and space applications.  During the year we completed the restructuring of the US operations and this has delivered cost reduction and positions the business for the future.

Performance

Reported revenue was £52.4m (2015: £52.0m).  US legacy product lines saw revenue increase from flow down on programmes, along with good growth coming from our own design high speed data converters for space applications.  This was offset by lower demand for microprocessors.  In other applications there was the anticipated decline in the legacy ASIC business as these products approach the end of their lifecycle.  SP Devices contributed £0.6m in the last two months of the year.

The division's adjusted(1) operating profit was £14.2m (2015: £11.9m), with a significant improvement in the margin despite the decline in revenue.  This was due to improved product mix, with growth in the higher margin lines, good cost control and improved operating performance.  Inventory levels have increased both to take advantage of opportunities for strategic product line acquisitions, SP Devices and to support short term delivery to customers.

The order book at 31 March 2016 was £20m (2015: £20m).  Orders for delivery within 12 months as at 31 March are £15m (2015: £18m), the lower order cover reflects the anticipated decline in the legacy ASICs business but also some delays to anticipated orders in the final quarter of the year.

The focus for the coming year is on delivering growth from the product line acquisitions and announced microprocessor last time buys.  We will continue to invest in cards, subsystems and our own IP development moving up the value chain.

FINANCIAL REVIEW

 

Revenue and adjusted(1) operating profit by division were as follows:

 


Revenue


Adjusted(1) operating profit


2016


2015


2016


2015


£m


£m


£m


£m









Imaging

103.5


88.7


15.7


9.3

RF Power

80.5


84.2


18.7


19.4

Semiconductors

52.4


52.0


14.2


11.9










236.4


224.9


48.6


40.6

Corporate centre and exchange movement





(6.6)


(0.5)






42.0


40.1

 

Review of trading performance and KPIs

 

The Group's revenue of £236.4m is up 5.1% compared with the last financial year.  The business grew 1.4% before the benefit of the acquisitions and excluding the effect of the sale of the Thermal Imaging business.  We also benefited from a foreign exchange tailwind of 2.4%.  By geographical spread, revenue was up in Asia Pacific and the rest of the world with North America and Europe where revenue was steady.  Geographic reach, the proportion of revenue outside Western Europe increased to 59% (2015: 57%) reflecting the revenue growth Asia Pacific and the rest of the world.  New business in the year, from new products or customers in the last three years, made up approximately 17% of revenue (2015:19%) and business mix, the percentage of revenue from sub-systems and solutions, was 34% (2014: 35%).

 

Gross profit was £95.2m (2015: £96.2m) a decrease of 1.4% and represented 40.3% of revenues (2015: 42.8%).  Included within gross margin is a significant swing in foreign exchange with losses on the retranslation of working capital and realised losses on foreign exchange contracts of £2.1m (2015: gains £3.4m).  The majority of the revenue growth came from high to mid margin businesses, along with improvement in the margins on Space programmes.  Gross margins benefited from improved operational performance in RF Power and Semiconductors with good cost control and the use of flexibility established in the cost base, including lower incentive payments.  The re-organisation of our Chelmsford site will improve the working environment for our people and increase flexibility.  We are also completed the separation of the defence businesses based in Lincoln to add further flexibility as we manage the portfolio of RF businesses.  For the coming year the benefits of the reorganisations will be used to rebuild the flexibility in the cost base including incentive payments.

 

Net expenditure on research and development decreased to £13.8m (2015: £14.8m) representing 5.8% of revenue.  The expenditure has been focused on investment in the key programmes supporting the growth opportunities.  Of the spend during the year 87% was customer aligned.  Grant funding decreased by £1.8m to £2.3m, as we reached the end of the funded phase of our Regional Growth Fund programmes.  We also received funding in France from the PIA.  The main R&D programmes include: sensors for Industrial Vision, our CMOS platform and establishing the platform for next generation semiconductor products, the next generation of RF generating sub-systems for Radiotherapy and process capability, coatings and CMOS for Space.  We continue to use subcontract resource where necessary to deliver these key programmes and also provide agility and flexibility.

 

Selling and distribution costs decreased by 2.8% to £17.1m (2015: £17.6m) reflecting the reorganisation of our customer services teams and the completion of the US organisation, whilst we continue to expand our activities in Asia.

 

Administrative costs decreased to £25.1m (2015: £32.7m).  Administrative costs include a number of the items excluded from adjusted(1) operating profit totaling £3.0m (2015: £8.9m) as detailed below.  The remaining administrative costs of £22.2m (2015: £23.8m) decreased by 6.7%, reflecting the reorganisation of the US and lower incentive payments partially offset by the pay review, whilst building the platform with investment in our core IT systems and our expansion in Asia.

 

Adjusted(1) operating profit

 

Adjusted(1) operating profit is considered to reflect more accurately the underlying performance of the business and is calculated as follows:

 


2016

2015


£m

£m




Operating profit

39.0

31.1

Included in administrative costs:



    Amortisation of acquired intangible assets

2.8

2.3

    Acquisitions

0.8

0.8

    Business improvement programme expenses, net

1.4

4.1

   Foreign currency (gains)/losses arising from fair value adjustment

(0.6)

1.9

   Profit on sale of properties

(0.3)

-

    Disposal of businesses

(1.1)

(0.1)

Adjusted(1) operating profit

42.0

40.1

 

Adjusted(1) operating profit increased to £42.0m (2015: £40.1m) and represented 17.8% of revenue (2015: 17.8%).  Return on capital employed (adjusted(1) operating profit divided by net operating assets and intangibles) was 20% (2015: 23%), reflecting the increased operating profit offset by increased working capital and the intangible assets arising on the acquisition of SP Devices.

 

Amortisation of acquired intangible assets of £2.8m increased from the prior year (2015: £2.3m) and primarily reflects a full year of amortisation on the assets associated with the acquisition of AnaFocus.  During the year payments under the earn out were £2.5m following the strong performance of the business and the achievement of integration targets.  The final payment of £1.2m is due in the first half of the current financial year as a result of AnaFocus achieving the earn out targets set at the time of the acquisition.

 

The Group completed the acquisition of SP Devices in January 2016 and in connection with this the Group incurred one-off transaction costs of £0.2m.  In the year, earn out payments to employees were recognised in relation to the AnaFocus acquisition along with foreign exchange losses on the outstanding contingent consideration of £0.6m.

 

During the year a restructuring of the remainder of the Group's central operations and RF Power was undertaken.  The Group also incurred some costs relating to the re-organisation of its Chelmsford facility.  We completed the reorganisation to implement our new vision and culture, to simplify our US operations and establish a separate organisation for the specialist defence activities of the Electronic Safety and Initiation and our Defence Microwave business.

 

The Group's overall foreign currency hedging policy is to put in place forward contracts to sell surplus currencies based on its trading forecasts, with the level of coverage decreasing over the next 12 months.  The mark to market adjustment on this cover amounted to a gain of £0.6m (2015: loss £1.9m).

 

Finance charges

 

Net finance costs were £1.2m (2015: £1.0m), an increase of 20% compared with the prior year reflecting the level of debt over the course of the year.  Of this £0.6m was non utilisation cost and amortisation of arrangement fees.

 

Taxation

 

The tax charge for the year was £8.1m (2015: £6.3m).  The effective tax rate on reported profit for the year ended 31 March 2016 was 21%.  This reflects a reduction in the UK tax rate to 20% (2015: 21%) partially offset by higher profits in France and Spain which are subject to higher rates of taxation.  The tax charge in the current year has benefited from tax credits for research and development in the UK and France of £2.6m (2015: £2.3m).  The effective tax rate on adjusted(1) profit before tax was 22%.  For the current financial year we consider that the effective rate on adjusted(1) profit will be c.29% based on the planned distribution of profits, with growth principally outside the UK, and reflecting that the benefit of R&D tax credits will be accounted for within profit before tax reflecting changes in the tax credit regime in the UK.

 

The Group generated profits in the UK, France, Spain and the US which were subject to tax at 20%, c.34%, 28% and c.40% (including state taxes) respectively.

 

Profit for the year

 

The profit for the year is £29.7m (2015: £23.8m).  The level of profitability reflects the lower level of specific items in the year partially offset by higher financing and tax costs.  We have increased our dividend by 5.9%, reflecting our progressive dividend policy.  An interim dividend of 1.6 pence per share, was paid in December 2015, and final dividend of 3.8 pence per share is proposed.

 

Currency

 

Our UK, Spanish and French manufacturing operations sell through the Group's global sales and distribution network and are therefore subject to transactional and translational risks particularly in relation to the US dollar which accounts for 45% (2015: 45%) of the Group's sales.  Where US dollar receipts are forecast to exceed US dollar costs, sufficient surplus US dollars are sold under foreign exchange contracts to cover costs incurred in the UK and France in accordance with the Group's hedging policy.

 

Our view for the current year is based on exchange rates as at the end of March 2016.  These rates provide a revenue tail wind of c.7%.  As at the 31 March 2016 we have unrealised losses on our foreign exchange hedges of £0.8m on the balance sheet, which we anticipate being realised in the current financial year.  This combined with the translation of our overseas cost base means the net benefit of exchange rates in terms of adjusted profit is estimated to be around c.4%.  The foreign exchange markets remain volatile and outcome will depend on how rates change over the course of the year.

 

Cash flow and net borrowings

 

Net borrowings of £21.1m, increased by £15.9m.  In terms of working capital movements this is in line with our working capital model, and decisions that we consciously made in the second half.  In Imaging inventory increased by £3.0m and trade receivables increased by £2.1m to support growth.  The cash outflow on our reorganisations and lower accruals for incentives accounting amounted to £6.5m.  We have continued to focus on our customers with our programme to reduce concentration in our supply chains and this along with utilisation of advanced payments on Space programmes has absorbed a further £5.2mThis was in part supported by reductions in planned capital expenditure in the later part of the year such that this remained equivalent to depreciation and amortisation.  We anticipate that capital expenditure will be c.£14m higher than depreciation in the coming year as we continue with our Chelmsford reorganisation.  Acquisitions utilised cash of £13.0m.  This included the acquisition in January of SP Devices for net consideration of £9.8m. In the year we also made earn out payments on AnaFocus of £2.5m and product line acquisitions in Semiconductors of £4.0m.  In October 2015 we sold the Thermal Imaging business for £3.3m.  In terms of financing we made share purchases of £3.7m as part of our normal hedging policy for share based incentive schemes, in addition to our normal payments for interest, tax and dividend.

 

Working capital

 

We have a range of working capital cycles across the divisions and businesses.  For example we support long term availably of product for Semiconductors, often holding inventory for a number of years.  In some of our Imaging sensor lines much of the manufacturing is provided by third parties and we only hold finished goods to satisfy customer orders.  As part of our focus on customers we have increased inventory levels to improve our responsiveness to their requirements.  We look to agree reasonable payment terms with our customers for our products.  Where we provide bespoke products or working on long term programmes we seek to obtain advance payments to maintain a positive profile.  In terms of trade payables we pay our suppliers in accordance with our agreed terms.  Overall we seek to manage working capital through the cycle and estimate that on average across the Group three to four months working capital is needed to support growth and we will continue activities to shorten working capital cycles over the current financial year.

 

Borrowing facilities

 

The Group's committed multi-currency revolving facilities are equivalent to £94.3m at 31 March 2016 exchange rates and are available for until 28 July 2018.  Based on the Group's performance and net borrowings as at 31 March 2016, the margin and utilisation fee payable is 115bps and non-utilisation fees at 40% of margin.

 

The facility is subject to leverage and interest cover covenants.  Due to the performance of the Group during the year and that the Group has net borrowings of £21.1m as at 31 March 2016, there is significant headroom on both covenants.

 

Central functions

 

The costs of the central functions are allocated to the divisions.  The central costs of £4.5m (2015: £4.0m) are the costs relating specifically to the management of e2v technologies plc which are not allocated. 

 

Key performance indicators (KPIs)

 

Our KPIs to monitor financial performance have been covered in detail in the Business Review.  The table below provides a summary of our KPIs.  Non-financial KPIs will be discussed in detail in the Corporate Responsibility Review in the Annual Report and Financial Statements and include customer satisfaction, number of reportable accidents in the year, and percentage reduction in our carbon footprint.


2016

2015




Reported revenue growth

5.1%

3%

Adjusted(1) operating profit margin

17.8%

17.8%

Return on capital employed

20%

23%

12 month order book (reduction)/growth

(11%)

14%

Revenue from sub-systems and solutions

34%

35%

Revenue outside of Western Europe

59%

57%

New business proportion

17%

19%

 

 

 

Consolidated income statement

Year ended 31 March 2016

 



2016

2015



Before

specific

items

Specific

items

(note 3)

Total

Before

specific

items

Specific

items

(note 3)

 Total


Notes

£000

£000

£000

£000

£000

£000









Revenue

2

236,423

-

236,423

224,920

-

224,920

Cost of sales


(141,256)

-

(141,256)

(128,713)

-

(128,713)

Gross profit


95,167

-

95,167

96,207

-

96,207









Research and development costs


(13,838)

-

(13,838)

(14,759)

-

(14,759)

Selling and distribution costs


(17,116)

-

(17,116)

(17,576)

-

(17,576)

Administrative costs


(22,176)

(2,962)

(25,138)

(23,806)

(8,928)

(32,734)

Operating profit


42,037

(2,962)

39,075

40,066

(8,928)

31,138









Finance costs

4

(1,243)

-

(1,243)

(1,051)

-

(1,051)

Finance revenue

4

13

-

13

16

-

16

Profit before taxation


40,807

(2,962)

37,845

39,031

(8,928)

30,103









Income tax expense

5

(9,037)

900

(8,137)

(9,340)

2,993

(6,347)

Profit for the year


31,770

(2,062)

29,708

29,691

(5,935)

23,756









Attributable to:








Equity holders of the Company


31,770

(2,062)

29,708

29,691

(5,935)

23,756









Earnings per share








Basic

6

14.59p


13.64p

13.68p


10.94p

Diluted

6

14.41p


13.47p

13.54p


10.83p

 

 

Consolidated statement of comprehensive income

Year ended 31 March 2016

 



2016

2015  



£000

£000





Profit for the year


29,708

23,756





Items that will not be reclassified to profit or loss




Remeasurement of defined benefit liability


182

(642)

Income tax relating to items not reclassified to income statement


(62)

221



120

(421)

Items that may be reclassified subsequently to profit or loss




Exchange differences on retranslation of foreign operations


11,672

(11,731)

Exchange differences on net investment hedges


(1,213)

4,472

Income tax relating to items that may be reclassified to income statement


244

(932)



10,703

(8,191)





Other comprehensive income/(expense) for the year


10,823

(8,612)

Total comprehensive income for the year


40,531

15,144





Attributable to:




Equity holders of the Company


40,531

15,144

 

Consolidated statement of financial position

As at 31 March 2016

 



2016

2015  


Notes

£000

£000


 


 

ASSETS




Non-current assets




Property, plant and equipment

8

46,869

43,537

Intangible assets


114,872

98,693

Trade and other receivables


-

315

Deferred income tax assets


9,952

9,862

Total non-current assets


171,693

152,407





Current assets




Inventories


54,744

43,981

Trade and other receivables


55,752

51,454

Other financial assets


147

-

Income tax receivable


3,084

154

Cash at bank and in hand


20,497

21,099

Total current assets


134,224

116,688

Total assets


305,917

269,095





LIABILITIES




Current liabilities




Trade and other payables


(46,476)

(52,233)

Borrowings

9

(2,194)

(1,399)

Other financial liabilities


(845)

(1,318)

Income tax payable


(1,963)

(2,273)

Provisions


(3,559)

(5,042)

Total current liabilities


(55,037)

(62,265)

Net current assets


79,187

54,423





Non-current liabilities




Trade and other payables


(2,057)

(1,091)

Borrowings

9

(39,109)

(24,374)

Provisions


(1,092)

(939)

Employment and post-employment benefits

11

(5,298)

(4,893)

Deferred income tax liabilities


(5,223)

(5,702)

Total non-current liabilities


(52,779)

(36,999)

NET ASSETS


198,101

169,831





CAPITAL AND RESERVES




Called up share capital


11,010

10,963

Share premium


44,534

43,553

Merger reserve


44,557

44,557

Own shares reserve


(4,137)

(483)

Capital redemption reserve


274

274

Foreign currency translation reserve


(212)

(10,915)

Retained earnings


102,075

81,882

TOTAL SHAREHOLDERS' FUNDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY


198,101

169,831

 

Consolidated statement of cash flows

Year ended 31 March 2016

 



2016

2015


Notes

£000

£000





Cash flows from operating activities




Profit before tax


37,845

30,103

Net finance costs


1,230

1,035

Operating profit


39,075

31,138





Adjustments to reconcile to net cash inflows from operating activities




Depreciation of property, plant and equipment

8

8,113

7,465

Amortisation of intangible assets


5,513

4,317

Profit on disposal of businesses

3

(1,132)

-

Profit on sale of property, plant and equipment


(295)

(12)

Foreign currency (gains)/losses arising from fair value adjustment

3

(618)

1,873

Share based payment charge


1,200

875

Increase in inventories


(9,255)

(5,645)

(Increase)/decrease in trade and other receivables


(2,076)

9,718

Decrease in trade and other payables


(6,076)

(2,724)

(Decrease)/increase in provisions


(1,461)

2,455

Cash generated from operations


32,988

49,460

Income taxes paid


(10,461)

(8,725)

Net cash flows from operating activities


22,527

40,735





Cash flows from investing activities




Proceeds from sale of property, plant and equipment


27

48

Proceeds from disposal of businesses


3,324

-

Interest received


13

15

Acquisition of subsidiary undertakings, net of cash acquired

13

(12,002)

(19,686)

Purchases of property, plant and equipment


(11,310)

(8,176)

Purchases of software


(616)

(1,840)

Expenditure on product development and patents


(103)

(451)

Net cash flows used in investing activities


(20,667)

(30,090)





Cash flows from financing activities




Interest paid


(725)

(681)

Proceeds from issue of shares


1,028

424

Purchase of treasury shares


(3,656)

-

Dividends paid

7

(11,335)

(9,746)

Net proceeds from borrowings

9

12,321

7,769

Transaction costs of new bank loans raised


-

(721)

Payment of finance lease liabilities

9

(889)

(247)

Net cash flows used in financing activities


(3,256)

(3,202)





Net (decrease)/increase in cash and cash equivalents

9

(1,396)

7,443





Net foreign exchange difference

9

794

(819)





Cash and cash equivalents at 1 April


21,099

14,475

Cash and cash equivalents at 31 March

9

20,497

21,099

 

 

Consolidated statement of changes in equity

Year ended 31 March 2016

 


Called

up share

capital

 

Share

premium

Merger

reserve

Own

shares

reserve

Capital

redemption

reserve

Foreign

currency

translation

reserve

Retained

earnings

 Total       Equity    


£000

£000

£000

£000

£000

£000

£000

     £000










At 1 April 2014

10,939

43,153

44,557

(2,655)

274

(2,724)

69,085

162,629










Other comprehensive income

-

-

-

-

-

(8,191)

(421)

(8,612)

Profit for the year

-

-

-

-

-

-

23,756

23,756

Total comprehensive income

-

-

-

-

-

(8,191)

23,335

15,144










Issue of shares

24

400

-

-

-

-

-

424

Transfer on issue of treasury shares

-

-

-

2,172

-

-

(2,172)

-

Dividends paid

-

-

-

-

-

-

(9,746)

(9,746)

Share based payment charge

-

-

-

-

-

-

875

875

Tax on share based payment

-

-

-

-

-

-

505

505

At 31 March 2015

10,963

43,553

44,557

(483)

274

(10,915)

81,882

169,831










Other comprehensive income

-

-

-

-

-

10,703

120 

10,823 

Profit for the year

-

-

-

-

-

-

29,708

29,708

Total comprehensive income

-

-

-

-

-

10,703

29,828

40,531










Issue of shares

47

981

-

-

-

-

-

1,028

Transfer on issue of treasury shares

-

-

-

2

-

(2)

-

Purchase of treasury shares

-

-

-

(3,656)

-

-

-

(3,656)

Dividends paid

-

-

-

-

-

-

(11,335)

(11,335)

Share based payment charge

-

-

-

-

-

-

1,200

1,200

Tax on share based payment

-

-

-

-

-

-

502

502

At 31 March 2016

11,010

44,534

44,557

(4,137)

274

(212)

102,075

198,101

 

Notes to the audited results

Year ended 31 March 2016

 

 

1.     Accounting policies     

 

Basis of presentation

The audited results for the year ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and applied in accordance with the provisions of The Companies Act 2006.  The preliminary announcement was approved by the Board of Directors on 13 May 2016.

 

The financial information set out in the audited results does not constitute the Group's statutory financial statements for the year ended 31 March 2016 within the meaning of section 435 of the Companies Act 2006 and has been extracted from the full consolidated financial statements for the year ended 31 March 2016.

 

Statutory consolidated financial statements for the year ended 31 March 2015, which received an unqualified audit report, have been delivered to the Registrar of Companies.  The reports of the auditor on the consolidated financial statements for 31 March 2016 and 31 March 2015 were unqualified and did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their reports.  The reports did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.  The consolidated financial statements for the year ended 31 March 2016 will be delivered to the Registrar of Companies and made available to all shareholders in due course.

 

The accounting policies applied in preparing these audited results are unchanged from those set out in the Group's 2015 Annual Report and Financial Statements.

 

The financial information is presented in Sterling.  All values are rounded to the nearest thousand (£000) unless otherwise indicated.

 

In order to provide a more relevant presentation of the Group's underlying performance, profit for each financial year has been analysed between:

 

a)    Trading results before specific items; and

 

b)    The effect of specific items.  Specific items are material items of income and expense which, in the opinion of the Directors, because of the nature or infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group's underlying performance for the financial year and are presented on the face of the income statement to facilitate comparisons with prior periods and assessments of trends in financial performance.

 

Specific operating items may include: business improvement programme expenses; last time build inventory provisions; gains and losses on sale of property; acquisition costs; impairments and fair value gains and losses on foreign exchange contracts; all operating items attributable to terminated or disposed operations and operations held for sale where there is a contractual agreement to sell; and amortisation of acquired intangible assets, including impairment.

 

Specific finance items may include: fair value gains and losses arising on interest rate swaps; realised exchange differences on the re-denomination of borrowings; and write-off of debt issue costs.

 

Specific tax items include the tax effect on specific operating items and specific finance items.

 

Further analysis of specific operating items are provided in note 3.

 

 

2.     Segment information

 

The Group is organised into three operating divisions, which are organised and managed separately based on the key products that they provide.  Each is treated as an operating segment and a reportable segment in accordance with IFRS 8, 'Operating Segments'.

 

The operating and reportable segments are:

 

·      Imaging providing high quality imaging sensors, cameras and sub-systems which deliver higher performance for our customers across a range of applications in the automation, healthcare, discovery and environment markets.

 

·      RF Power producing components and sub-systems that deliver high performance and high reliability radio frequency power generation for healthcare, industrial and defence applications.

 

·      Semiconductors providing high reliability semiconductors that meet the demanding specifications of our customers.  Our design capability is enabling us to partner with customers and move up the value chain by providing multi-chip modules and boards.

 

A more detailed description for each segment is included with the 'Our value proposition - what we do and our key drivers' sections of the Business Review.

 

Centre-corporate includes those unallocated costs directly associated with the management of the Group's public quotation and other related costs arising from the corporate management of the Group along with treasury related activities.

 

Segment revenue and results

The following is an analysis of the Group's revenue and results by reportable segment.  There was no inter-segment trading during the period covered by these financial statements.

 

 

 

Imaging

RF Power

Semi-

conductors

Centre-

corporate

Total

operations

Year ended 31 March 2016

£000

£000

£000

£000

£000







Revenue






Revenue from eternal customers

103,473

80,540

52,410

-

236,423







Segment result






Adjusted segment profit

15,666

18,763

14,171

-

48,600

Corporate costs

-

-

-

(4,455)

(4,455)

Exchange differences

-

-

-

(2,108)

(2,108)

Adjusted operating profit/(loss)

15,666

18,763

14,171

(6,563)

42,037

Specific operating items

(420)

(989)

(2,099)

546

(2,962)

Operating profit/(loss)

15,246

17,774

12,072

(6,017)

39,075

Net finance costs





(1,230)

Profit before taxation





37,845

Income tax expense





(8,137)

Profit for the period





29,708







Total assets

95,691

47,480

117,812

44,934

305,917

Total liabilities

(17,043)

(7,468)

(4,891)

(78,414)

(107,816)

Net assets

78,648

40,012

112,921

(33,480)

198,101

 

 

 

 

Imaging

RF Power

Semi-

conductors

Centre-

corporate

Total

operations

Year ended 31 March 2015

£000

£000

£000

£000

£000







Revenue






Revenue from external customers

88,755

84,194

51,971

-

224,920







Segment result






Adjusted segment profit

9,316

19,433

11,878

-

40,627

Corporate costs

-

-

-

(3,977)

(3,977)

Exchange differences

-

-

-

3,416

3,416

Adjusted operating profit/(loss)

9,316

19,433

11,878

(561)

40,066

Specific operating items

(1,997)

(1,026)

(1,557)

(4,348)

(8,928)

Operating profit/(loss)

7,319

18,407

10,321

(4,909)

31,138

Net finance costs





(1,035)

Profit before taxation





30,103

Income tax expense





(6,347)

Profit for the period





23,756







Total assets

89,597

48,433

92,482

38,583

269,095

Total liabilities

(19,721)

(8,956)

(3,090)

(67,497)

(99,264)

Net assets

69,876

39,477

89,392

(28,914)

169,831

 

Geographical information

The Group's revenue from external customers and information about its non-current assets by geographical location are detailed below:

 


2016

2015


£000

£000




Revenue by destination



United Kingdom

32,443

32,902

North America

77,129

77,113

Europe

64,373

63,606

Asia Pacific

56,937

47,437

Rest of the World

5,541

3,862



236,423

224,920

 


2016

2015


£000

£000




Non-current assets (excluding taxes)



United Kingdom

42,910

41,700

North America

35,639

36,707

Europe

82,694

63,840

Asia Pacific

498

298



161,741

142,545

 

 

3.     Specific operating items

 


2016

2015


£000

£000




Amortisation of acquired intangible assets

2,795

2,281

Acquisition related costs

824

759

Business improvement programme expenses, net

1,377

4,115

Foreign currency (gains)/losses arising from fair value adjustment

(618)

1,873

Disposal of businesses

(1,132)

(100)

Profit on sale of properties

(284)

-

Specific item charge

2,962

8,928

 

Acquisition related costs

As detailed in note 13, the Group completed the acquisition of SP Devices in January 2016 and in connection with this incurred one-off transaction costs of £232,000 (2015: £446,000 in connection with acquisition of AnaFocus).  Exchange losses of £199,000 (2015: gains £231,000) have been recorded relating to the outstanding contingent consideration for both SP Devices and AnaFocus.  Where payments in connection with the acquisition are dependent upon future employment, they are treated as a cost of continuing employment, costs of £393,000 (2015: £544,000) have been recorded in relation to AnaFocus.  No such costs arise from the acquisition of SP Devices.

 

Business improvement programme expenses, net

During the year the Group has repositioned its regional teams in US and Asia so that they too are aligned with the divisions and has also reorganised RF's defence business into three distinct units.  Costs of £1,205,000 have been recorded principally related to staff costs and which include £214,000 to establish a new facility in Lincoln for the Microwave business unit.  Project Sunrise, the reorganisation of the footprint at the Chelmsford facility, continues with costs of £441,000 (2015: £686,000) incurred in the period.

 

In the year ended 31 March 2015, an announcement to cease manufacturing in Beijing, China during the first half of the following financial year was made prior to 31 March 2015, together with the commencement of a consultation process regarding the planned closure of the sales office in Bievres, France.  During the current year these work programmes have progressed and a credit of £269,000 recorded, principally as an onerous lease provision is no longer required.

 

During the year ended 31 March 2015, the Group restructured the Group's central operations, RF Power and Imaging teams and a charge of £3,429,000 was recorded in respect of these activities and those in Bievres and China, principally related to staff and onerous lease costs. 

 

Foreign currency (gains)/ losses arising from fair value adjustment

The Group, in part, hedges its exposure to foreign currency risks through the use of forward exchange contracts.  The changes in the fair value of the instruments are recorded as specific items in the income statement.  Fluctuations in the exchange rates have resulted in a net fair value gain of £618,000 (2015: loss £1,873,000).

 

Disposal of businesses

On 8 October 2015 the Group sold the trade and assets of the thermal imaging business.  The net proceeds on this transaction were £2,919,000.  The assets disposed comprised: development costs (£95,000), property, plant and equipment (£248,000) and inventories (£1,494,000) such that a gain on sale of £1,082,000 has been recognised.  Deferred consideration relating to the sale of the Group's RF Satcom business became receivable in the year and a further gain of £50,000 has been recognised.  A gain of £100,000 was recognised in the year ended 31 March 2015 in connection with this same business on the expiration of product warranties.

 

Profit on sale of properties

In the year ended 31 March 2010, the Group sold its former Lincoln site.  The contract included the provision for a further payment dependent upon the square footage of the new properties built.  An amount of £284,000 has been agreed with the developer.

 

 

4.   Finance costs and revenue

 


2016

2015


£000

£000




Bank loan interest

685

644

Other interest

194

86

Interest on employment and post-employment benefits

52

117

Interest on finance leases

42

30

Amortisation of debt issue costs

270

174

Total finance costs

1,243

1,051




Bank interest receivable

13

16

Total finance revenue

13

16

 

 

5.     Income tax expense

 

Major components of income tax expense charged to the income statement for the years ended 31 March 2016 and 2015 are:

 


2016

2015


£000

£000




Current income tax



   Current income tax expense - UK corporation tax

2,237

2,274

   Current income tax expense - foreign tax

5,747

6,887

Current income tax expense

7,984

9,161

Adjustments in respect of current income tax of previous years

(168)

(112)

Total current income tax expense

7,816

9,049




Deferred income tax



   Relating to origination and reversal of temporary differences

622

(2,068)

   Adjustments in respect of deferred income tax of previous years

(348)

(97)

   Effect of change in tax rate

47

(537)

Total deferred income tax expense

321

(2,702)




Income tax expense recognised in the consolidated income statement

8,137

6,347

 

A reconciliation of income tax expense applicable to the accounting profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate for the years ended 31 March 2016 and 2015 is as follows:

 


2016

2015 


£000

£000




Profit before taxation

37,845

30,103




At UK statutory income tax rate of 20% (2015: 21%)

7,569

6,322

Permanent differences

188

334

Tax relief on research and development

(2,579)

(2,348)

Effect of higher taxes on overseas earnings

3,333

2,628

Share based payments

78

23

Unrecognised deferred tax in respect of losses

17

134

Adjustments in respect of current income tax of previous years

(168)

(112)

Adjustments in respect of deferred income tax of previous years

(348)

(97)

Change in tax rate

47

(537)

Total tax expense reported in the consolidated income statement

8,137

6,347

 

The UK government, with effect from 1 April 2015,reduced the main rate of UK corporation tax from 21% to 20%.  In addition, the Finance Bill 2016, which was substantively enacted on 26 October 2015, will reduce the UK corporation tax rate to 19% from 1 April 2017 and to 18% from 1 April 2020.  UK deferred tax balances as at 31 March 2016 have been calculated based on the reduced corporation tax rate of 20%, 19% and 18% being the relevant tax rate that is expected to apply to the period when the asset is realised or the liability is settled.  The Spanish government, for financial periods beginning during 2015, reduced the main rate of Spanish corporation tax rate from 30% to 28%, and for financial periods beginning during 2016, reduced the rate further to 25%.  Spanish deferred tax balances as at 31 March 2016 have been calculated based on the Spanish corporation tax rate of 25%, the rate expected to apply to the period when the asset is realised or the liability is settled.

 

 

6.     Earnings per share

 

Basic earnings per share is calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.  Diluted earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of dilutive options. 

 

Adjusted earnings per share is calculated on the basis of net profit for the year before specific items.  In the Directors' judgement adjusted earnings per share is considered to more appropriately reflect the underlying performance of the business year on year.

 

The following reflects the net profit and share data used in the basic and diluted earnings per share computations:

 


2016

2015


£000

£000




Profit for the year

29,708

23,756

Amortisation of acquired intangible assets

2,795

2,281

Acquisition related costs

824

759

Business improvement programme expenses, net

1,377

4,115

Foreign currency (gains)/losses arising from fair value adjustment

(618)

1,873

Disposal of businesses

(1,132)

(100)

Profit on sale of properties

(284)

-

Tax effect of the above

(900)

(2,993)

Profit before specific items attributable to ordinary shareholders

31,770

29,691

 


2016

2015


No. 000

No. 000




Weighted average number of ordinary shares



For basic EPS

217,777

217,115

Effect of dilution:



Share options

2,731

2,137

For diluted EPS

220,508

219,252

 

 

7.     Dividends paid and proposed

     


2016

2016

2015

2015


Pence per

share

£000

Pence per

share

£000






Final dividend paid in respect of the prior year

3.6

7,863

3.0

6,482

Interim dividend paid in respect of the current year

1.6

3,472

1.5

3,264


5.2

11,335

4.5

9,746

 

The EBT and the Company have waived their right to receive dividends.

 

The Board recommends that a final dividend in respect of the year ended 31 March 2016 of 3.8p per share will be paid on 2 August 2016 to shareholders registered at the close of business on 8 July 2016.  This dividend is subject to approval by shareholders at the Annual General Meeting and therefore the liability of approximately £8,281,000 has not been included in these financial statements.  The amount is based on the number of shares in issue, excluding those held by the EBT and the Company, at the date that these financial statements have been approved and authorised for issue.  The actual payment may differ due to increases or decreases in the number of shares in issue between the date of approval of these financial statements and the record date of the final dividend.

 

 

8.     Property, plant and equipment

 





2016

2015





£000

£000







Opening net book value




43,537

41,079

Acquisitions through business combinations




8

1,699

Additions




10,763

8,701

Depreciation




(8,113)

(7,465)

Disposals




(263)

(36)

Exchange adjustment




937

(441)

Closing net book value




46,869

43,537

 

 

9.     Borrowings

 




2016

2015




£000

£000






Current





Finance leases



1,403

418

Other loans



791

981

Total current borrowings



2,194

1,399






Non-current





Bank debt



36,234

22,500

Finance leases



1,587

770

Other loans



1,565

1,651

Unamortised debt issue costs



(277)

(547)

Total non-current borrowings



39,109

24,374

Borrowings per the balance sheet



41,303

25,773

 

On 29 July 2014, the Group entered into a new revolving credit facility which expires on 28 July 2018, and which is denominated in Sterling (£62,500,000), US dollars ($40,000,000) and Euros (€5,000,000).  At 31 March 2016 exchange rates, the total facility is £94,268,000 (2015: £93,176,000).  Provided covenants continue to be met, the draw down under the revolving credit facility is at the discretion of the Group and consequently the loan is treated as non-current.  As at 31 March 2016, £36,234,000 (2015: £22,500,000) was drawn down under this facility.

 

The revolving credit facility is repaid and re-drawn at periodic intervals ranging from one to six months, with the interest rate set at each draw down date.  Interest is set by reference to LIBOR plus a margin which is determined based on the level of the reported leverage covenant (defined as net borrowings: earnings before interest, tax, depreciation and amortisation).

 

As at 31 March 2016, the Group had available £58,034,000 (2015: £70,676,000) of un-drawn committed borrowing facilities in respect of which all conditions precedent had been met.

 

As at 31 March 2016, unamortised debt issue costs were £277,000 (2015: £547,000).  As at 31 March 2016 and at 31 March 2015, the bank loans were unsecured. 

 

Reconciliation of movement in net borrowings:

 

 

 

At 1 April

 2015

Cash flow

Assumed on

acquisition

Non-cash

movements

Exchange

movement

At 31 March

2016


£000

£000

£000

£000

£000

£000








Cash and cash equivalents

21,099

(1,662)

266

-

794

20,497

Bank loans

-

(498)

(36,234)

Net bank borrowings

(1,401)

(14,556)

(76)

-

296

(15,737)








Finance leases

(1,188)

889

-

(2,491)

(200)

(2,990)

Other loans

(2,632)

573

-

(111)

(186)

(2,356)

Net borrowings

(5,221)

(13,094)

(76)

(2,602)

(90)

(21,083)








Debt issue costs

(270)

-

277

Net debt

(4,674)

(13,094)

(76)

(2,872)

(90)

(20,806)

 

Non-cash movements include intangible assets acquired under finance leases (£2,449,000), finance charges on finance leases (£42,000), unwinding of discounting on interest free and low interest loans (£111,000) and amortisation of debt issue costs (£270,000).

 

 

10. Commitments and contingencies

 

Capital commitments

At 31 March 2016, the Group has commitments of £1,277,000 (2015: £3,835,000) principally relating to the acquisition of new plant and equipment.

 

Contingent liabilities

The Company and its subsidiaries may be parties to legal proceedings and claims which arise in the ordinary course of business, and can be material in value.  Appropriate provision has been made in these accounts where, in the opinion of the Directors, liabilities are likely to materialise.  Furthermore, in the ordinary course of business, the Group may also issue performance and advance payment guarantees.  Guarantees are treated as contingent liabilities until such time as it becomes probable that a payment will be required under the terms of the guarantee.  As at 31 March 2016, bank guarantees of £3,406,000 (2015: £3,580,000) are outstanding.

 

The Group has received grant assistance from the UK government's Regional Growth Fund which is conditional on certain job targets being achieved in future years.  The Directors are of the opinion that the risk of repayment of the grants is not significant and consequently no liability is recorded for the repayment of such grants.

 

 

11.  Other post-employment and other employment benefits

 

In addition to the state pension scheme, e2v semiconductors SAS and e2v SAS have arrangements where there are obligations to provide termination allowances and 'Medailles du Travail' (long service awards).  These are unfunded arrangements and the actuarial liability has been calculated at 31 March 2016 by a qualified actuary using the unit credit method.  The cost of providing these benefits is charged to the income statement in the period in which those benefits have been earned by the employees.  Remeasurement gains and losses are recognised in full in the period in which they arise.  For the termination allowance the remeasurement gains and losses are recorded in other comprehensive income whereas for the long service award the remeasurement gains and losses are recorded in the income statement. 

 

As at 31 March 2016, a non-current liability of £5,298,000 (2015: £4,893,000) has been recognised with respect to the termination allowance and long service award arrangements.

 

 

12.  Related party disclosures

 

Transactions between Group subsidiaries have been eliminated on consolidation.  A list of subsidiaries can be found in the notes to e2v technologies plc, the parent company financial statements.

 

 

13. Business combinations

 

On 22 January 2016, the Group acquired 100% of the share capital of Signal Processing Devices Sweden AB (SP Devices), a Linköping based company specialising in the design and development of high performance analogue-to-digital processing technology.  The business brings proven patented technology in software and board level sub-systems and services, which compliments and enhances e2v's existing broadband data converter business.  The acquisition has been accounted for using the acquisition method.  The consolidated financial statements include the results of SP Devices for the period from the acquisition date, reported within the Semiconductors segment (note 2).

 

The provisional fair value of the identifiable assets acquired and liabilities assumed as at the date of acquisition were:

 



£000



ASSETS


Intangible assets

2,061

Property, plant and equipment

8

Deferred income tax asset

626

Inventories

198

Trade and other receivables

408

Cash

266



3,567




LIABILITIES


Trade and other payables

(646)

Borrowings

(342)

Deferred income tax liability

(243)


(1,231)



Total identifiable net assets at fair value

2,336

Goodwill arising on acquisition

10,219

Total consideration

12,555

 

Consideration satisfied by:


£000



Cash paid

9,768

Contingent consideration

2,787


12,555

 

Analysis of cash flows on acquisition:


£000

Consideration paid

9,768

Net cash acquired with the subsidiary

(266)

Net cash outflow included in investing cash flows

9,502

 

The goodwill of £10,219,000 represents the premium paid in anticipation of future profitability from assets that are not capable of being separately identified and separately recognised such as the assembled workforce as well as the expectation that the Group will be able to leverage its wider market access and strong financial position to generate sustainable financial growth beyond that what SP Devices would have potentially achieved as a standalone company.  None of the goodwill is expected to be deductible for tax purposes.

 

The intangible assets acquired as part of the acquisition relate mainly to current technology (£1,266,000), customer relationships and agreements (£720,000), and trade name (£75,000), the fair value of which is dependent on estimates of attributable future revenues, profitability and cash flows and are being amortised over 15, 8 and 2 years respectively.  Trade and other receivables acquired have a provisional fair value of £408,000 and a gross contractual value of £408,000, all of which is currently expected to be collectible.  The fair value of the acquired identifiable assets and liabilities is provisional pending finalisation of the fair value exercise.

 

£2,787,000 of contingent consideration represents the fair value, at acquisition date, of the additional consideration.  This is the maximum payment and is dependent on the achievement of revenue targets over a two year period from acquisition.  Acquisition related costs of £232,000 have been included as a specific item in administrative expenses (note 3).

 

SP Devices contributed £675,000 of external revenue and £92,000 to the Group's adjusted operating profit from the date of acquisition to 31 March 2016.  If the acquisition had been completed on 1 April 2015, Group revenue and adjusted operating profit for the year ended 31 March 2016 would have been £239.0 million and £42.3 million, respectively.

 

The Group acquired 100% of the voting rights of Innovaciones Microelectronicas SL (AnaFocus) on 4 September 2014.  Provisional numbers were disclosed in the 2015 financial statements while management completed the fair value exercise.  No adjustments were identified during the completion of this review.  There have been no changes to the expected settlement of the contingent consideration, with a payment of £2,500,000 recognised in the year in line with the maximum payment.  A further payment for the final tranche of contingent consideration of €1.5million is expected to be paid in the first half of year ending 31 March 2017. 

 

 

14.  Annual General Meeting

 

The Annual General Meeting will be held at Investec Investment Banking, 2 Gresham Street, London, EC2V 7QP on 13 July 2016 at 9.00am.  Annual Report and Financial Statements will be issued to members in June 2016.

 

 

15. Principal risks and uncertainties

 

Risk management approach

The assessment and management of risk is a responsibility of the Board.  The Executive Directors lead the risk management process which includes a formal process for identifying, evaluating and managing the significant risks faced by the Group, organised around a three-tiered framework at the process, management and strategic levels within the organisation.

 

A robust assessment of the principal risks facing the Group has been carried out and a summary of those risks is set out below.  The assessment includes previously identified risks, and where appropriate, their mitigation, being monitored monthly at the Board and divisional review meetings, and any newly identified risks are evaluated as required.  A detailed risk review is carried out and presented to the Audit Committee, where the validity of the risk management process is assessed, the relevance and potential effects of the principal risks and uncertainties are reviewed, and the net risk to the Group (after mitigating controls) is evaluated and assessed relative to the risk appetite of the Group.  All risks are classified based on a matrix of likelihood of occurrence compared with implications for the business, and are aligned with the strategic drivers of the business.

 

Principal risks and uncertainties

The principal risks and uncertainties identified by the Board are listed below:

 

·      Focus on customer: Strategic realignment, Advancement in technology

·      Embed new culture: Change management

·      Sustain innovation: Knowledge and skills

·      Operate with excellence: Long term contract execution, Cyber security, Product quality and liabilities, Supply chain disruption, Laws and regulations, Foreign currency

·      Grow organically (accelerate with acquisitions): Global markets, Acquisitions

 

A full description of these risks, their potential effects on the Group, and the mitigating actions taken, will be provided within the Strategic Report included in the 2016 Annual Report and Financial Statements.  Whilst the risks associated with interest rates, credit and liquidity are discussed in note 31 to the consolidated financial statements.


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